“If you get nothing else out of reading this book than the one following principle, it will still have been a very worthwhile endeavor: Successful traders find a methodology that fits their personality.”
Jack Schwager, author of Market Wizards
“Traders must find a methodology that fits their own beliefs and talents. A sound methodology that is very successful for one trader can be a poor fit and a losing strategy for another trader."
Colm O’Shea
If you are a new trader, it may be a difficult task for you to choose
your trading style, but it is absolutely a necessary step for your long
term success as a trader. By choosing the trading style that best suits
your personality, you will have a better chance of being a profitable
trader. In this section, we shall look at the various trading styles and
see whether you can find one style that suits you most.
According to Jack Schwager, author of Market Wizards, successful traders
usually match one of the four types of trading with their personality
type.
Scalping
Scalping is a very rapid trading style. Scalpers often make trades
within just a few seconds of each other, and often in opposite
directions (i.e. they are long one minute, but short the next). Scalping
is best suited to active traders that can make immediate decisions and
act on those decisions without hesitation. It is one of the most
cognitive demanding forms of trading. Successful scalpers rely on
intuition developed through years of experience along with a defined set
of rules that are part of their overall system. This may be out of
reach for traders who are just starting out. In addition, new traders
who have more active personalities tend to overtrade their accounts.
Even experienced active traders can fall into the overtrading trap as
well.
Day Trading
If you are one of those who get worried because of overnight positions
then maybe day trading is for you. Like scalping, day trading also have
no overnight positions, but it is the milder form of scalping. Day
traders may take two or three trades a day and then liquidate all
trading positions before the close of the day. A day trader does not
subject his or her capital to overnight risk that can adversely affect a
portfolio.
While day trading requires skill, knowledge and discipline, it does not
require the precision and high winning percentages to become profitable
like scalping. They can usually locate trading opportunities that offer a
minimum 1 to 2 risk to reward ratio. By only taking trades with a 1 to 2
risk to reward ratio, day traders only need to win 32% of the time to
breakeven. Overtime, as the active personality skills develop, they may
incorporate scalping as a natural next step.
By developing a solid day trading plan, active traders will have both a
winning strategy that they can stick with because it matches their
personality style which needs activity and variety.
Swing Trading
Swing trading strategy would ideally fit the analytical person as he
aims to profit from both trend following moves and the subsequent
corrections. Active personalities may find swing trading uncomfortable
as they incline to make quick decisions, they cannot stick to a swing
trading plan that may take weeks to unfold. They may feel restless and
even begin to question the trade. As a result, they will find themselves
taking profits or exiting a trade too early. Swing trading generally
requires a larger stop loss than day trading, so the ability to keep
calm when a trade is against you is a necessity.
Position Trading
Position trading is the longest term trading of all, and often has
trades that last from weeks to months or even years. Therefore, position
trading is only suitable for the most patient and least excitable
traders. Position trading targets are often several thousand pips (for
example, forex), so if your heart starts beating fast when a trade is 25
pips profit, position trading is probably not suitable for you.
Position trading also requires the ability to ignore popular opinion
because a single position trade will often hold through both bull and
bear markets. For example, a long position trade may need to be held
through an entire year when the general public is convinced that the
economy is in a recession. If you are easily swayed by other people,
then position trading is going to be difficult for you.
Being Faithful to your Trading Style
Choosing a trading style requires the flexibility to know when a trading
style is not working for you, but also requires the consistency to
stick with the right trading style even when it is not performing
optimally. One of the biggest mistakes that new traders often make is to
change trading styles (and trading systems) at the first sign of
trouble. Constantly changing your trading style or trading system is a
sure way to catch every losing streak. So often we hear that traders
have to change their personality to fit trading. To some extent this can
be done. However, if the changes are too far from a person’s core
personality, failure is more likely. Personality should drive the choice
of trading strategy rather not the other way round. Once you are
comfortable with a particular trading style, remain faithful to it, and
it will reward you for your loyalty in the long run.
http://paulineseconomicsforum.blogspot.my/2016/04/trading-personality.html
